1. Just because the CPI has deviated from the tolerance range for a month or so doesn’t mean that the MPC should react immediately, much less when the CPI is being boosted mostly by external factors.

2. Although Mr Pawlak doesn’t seem to have elaborated on countermeasure, it is the government that has the real ability to counter the global inflationary pressure. The countermeasure is not redistribution of household income but redistribution of production capital, which corresponds with the long-term expectations to be built by the domestic enterprises and thus the demand for employment. The target of the policy is incubation small- and medium-sized enterprises that produce intermediate- and capital- goods (and services) funded by domestic capitals. They usually employ more people per capital unit then other enterprises do, and the supply of their products as a result of mutual business competition will naturally reduce the money wages and CPI (thus one way or another on the real wages) and help the economy increase the net export and domestic capitals. With this structure the economy must be really robust.

3. Therefore, the taxation system, infrastructure projects and other socioeconomic policies should be designed towards the grand policy-target of eventual incubation of the said species of enterprises so that the long-term (upward) trend of CPI will mitigate.

4. This time the monetary policy council forged a nice rhetoric of the eased upward pressure on the CPI due to the high unemployment and sluggish investment. Despite the Phillips curve seemingly vertical in the long run, this equivocal rhetoric must still sound somehow convincing to speculators throughout the world, who tend to show collective knee-jerk reactions on the short-term expectations. The zloty may soon overshoot downside due to those rate-hike-bandwagon jumpers in the fx markets being forced to square their positions, possibly scaring some hasty people as an extra effect, and, with their positions having been sorted out to some extent, rally again as part of the usual process …unless a big fluctuation breaks out somewhere else in the world in the middle of it.

10:19 pm March 5, 2011

Jan wrote:

If the society cares too much about landscape it will discourage small- and medium-sized producers. Industrial zones that the state or municipal governments currently provide on vacant lots of land are all for enterprises that have sizable amounts of capital. Small manufacturers need garage-sized factories and offices close to their residences.

I have once heard there used to be a number of garage-sized manufacturers in the Praga district of Warsaw mainly producing clothing. It’s the successive central and local governments’ fault that they didn’t promote the local industry by organising the system and infrastructure to turn them into a Milan, Paris or New York or at least a centre of street-fashions for the youth and ordinary households – like London or Tokyo.

Some Poles have said to me that most of the Poles cannot afford latest fashions, especially locally produced, and that they have to rely on less costly imports, mainly from China and Vietnam, for fashions. They don’t recognise that that’s because their past models of economic development has not sufficiently focused on the domestic production by domestic capitals but inclined towards the domestic consumption and domestic production by foreign capitals. I have never heard that anybody pointed out the fact that even the two Balcerowicz plans had left the problem untouched of the possibility of the whole system’s eventually prioritising domestic productions run by foreign capitals, although I think that his plans were generally right in direction as prescriptions for the then Polish economy and that the plans only need some fine tunings today.

The policy target I presented in my previous post is the state of multi-layered domestic production of goods and services by domestic capitals in which even a large and dense chunk of clothing industry as a group of domestic producers of producer- and consumer-goods would encourage other businesses that domestically produce various kinds of producer-goods and other services to be used in the industry – even within the grand framework of free market and free trade.

As the policy target is gradually realised there must naturally emerge towns throughout the country that care less about landscape but much more about producing goods and services at small lots and houses in some of the streets. Those streets may indeed look ugly with messy-looking factories at first sight, but they are the very foundation of the healthy form of economic development that accumulates the type of tangible and intangible fixed factors (e.g. plant, skill of each employee, know-how, motivation, brand, geographical advantage, cultural preference, etc.) of production that hardly deplete the additional accounting values they create – directly appraisable beforehand or not – for respective long periods of time. This is what the real competitiveness of the economy comes from.

There used to be loads of the street of that sort in the former West Germany and Japan before these economies started adopting market-liberalism decades ago as a wrong prescription for the then global inflation.

Neoclassical economists overlook the above dynamics and often use the dirty rhetoric that the method is identical with mercantilism, protectionism or market-interventionism, neglecting the fact that the dynamics is about attaining free market and competitiveness at the same time (i.e. winning the healthy form of economic development in the global free-market competition) with the central and municipal governments’ clear commitments to adjusting fixed factors of production, not to directly fiddling with the free-market framework, economic borders or market variables.

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